Posted on 06/06/2003 10:10:47 AM PDT by presidio9
The most effective attacks on conventional economics are launched by renegade economists. Why? Because they know where the bodies are buried.
Clive Hamilton, director of the Canberra think-tank the Australia Institute, is a former econocrat with a PhD in economics.
His book, Growth Fetish, published by Allen & Unwin, is a powerful attack on conventional economics and its rarely examined assumption that unending growth in the consumption of goods and services is what will make us happy.
Hamilton argues that economists have created a story about how the world works based on certain aspects of human behaviour: self-interested calculation, individualism and materialism.
"The strangeness of the economists' world," he says, "arises from the fact that they recognise only this form of behaviour as valid and insist on imposing it on everything that people do."
In other words, Homo Economicus - the person who inhabits the economists' models - bears only a passing resemblance to you and me. The economists have seized on a few aspects of human nature and assumed (because it makes their models easier to play with) that this is all there is to us.
Even this wouldn't matter if the aspects of our nature they've seized on were the ones that are most influential in the way we think and act. But they're not.
It's true, for instance, that we can be terribly self-interested in our behaviour (especially if you define altruistic behaviour as a form of self-gratification) and it's true that, on occasion, we can all be quite calculating.
But, as the Nobel prize winning economist George Akerlof has observed, the theory really assumes that people - "economic agents" in the jargon - are emotionless geniuses.
We carefully and unfailingly calculate which among all the options available to us is the most advantageous, and our calculations are never affected by our emotions - not by pity, love, light-heartedness, generosity, pride, anger, concerns about face, fear or anything else.
In truth, Akerlof says, economic agents are just average people with emotions and limited foresight.
Cognitive psychologists have demonstrated that the human brain is simply not capable of making the many hundreds of rigorously logical calculations a day that would be needed to make us "rational".
And the new school of behavioural economics - which draws on the insights of psychology - has shown how the economic decisions we make rely on a host of brain-saving mental short cuts (known as "heuristics") and are influenced by our emotional reactions to the circumstances in which decisions present themselves to us.
They've shown, too, that our attitudes and behaviour are influenced by something the economists define right out of the picture: perceptions of fairness.
That brings us to the next item on Hamilton's list of conventional economics' flawed assumptions: individualism.
The neo-classical model examines the behaviour of economic agents as individuals, not as part of a group. We don't care about the people around us, and their attitudes and behaviour have no influence on our attitudes and behaviour - with one notable exception: other people's behaviour matters to the extent that it affects the prices we pay.
This flies in the face of the most obvious truth that man is a social animal. We care deeply about the people around us - particularly what they think of us - and our attitudes and behaviour are heavily influenced by the attitudes and behaviour of others.
How's this for a weakness in the model: economists never doubt for a moment that if someone's annual income rises by $1000, they'll be happy. It never enters the economist's mind that, if my income rises by $1000 while everyone else's rises by $2000, I'll be either murderously angry or suicidally depressed.
Man is, in many respects, not just a social animal, but a herd animal. When house prices are shooting up because lots of people are "trading up the market", we feel an almost irresistible urge to join in before we miss out.
When everyone's raving about a new film, or a new book, more and more people want to see it or read it. And why is it that, every Christmas, there's one particular toy that every kid wants (and that sells out early)?
Most of us have a herd-like desire to "fit in", to be appropriately dressed (which means to be wearing much the same as what everyone else in our group is wearing), to keep up with the Joneses - and, increasingly, to get ahead of the Joneses.
But from the laughable assumption that we're all rugged individualists flow two key assumptions of market economics.
The first is that a consumer's preferences are "exogenously determined". Each of us knows exactly what it is we want to buy, and all we're waiting to be told is the prices we have to pay. Once we know that, we adjust the quantities on our lifestyle shopping list so as to maximise the "utility" we derive from what we have to spend.
Similarly, individuals know exactly what they want to achieve with their lives - how hard they want to strive to become rich, for instance - and they just keep beavering away at it.
The claim is that there's nothing the economic system - the market - can do to change our clearly defined preferences. And from this flows the other assumption of "consumer sovereignty".
In a capitalist economy, it's not the capitalist who's king, it's the consumer. The only way for a business to maximise its profit is to produce exactly what it is the consumer wishes to buy.
And the consumer is supposed to be sovereign in another sense: no one has the right to question the wisdom of his or her choices. Within the constraints of their income, the consumer will always choose to buy that collection of goods and services which, no matter how bizarre or dubious, maximises their utility.
No outsider could nominate a different collection that would yield the individual greater utility.
But this is hugely unrealistic. Hamilton writes that "consumers' preferences do not develop 'outside the system'; they are created and reinforced by the system, so that consumer sovereignty is a myth".
We're emotional beings, our preferences keep changing and are easily influenced by the attitudes and actions of the people around us. More to the point, they're easily influenced by the producers themselves, via their advertising and marketing.
Economists hate talking about advertising. When pressed, they seek to dismiss it by claiming it's purely informational.
But we all know this is nonsense. We know advertisers sell the sizzle, not the steak. Some of the most creative minds in the country sell stuff by playing on our emotions. They associate the most prosaic products with a life of love, glamour, success and happiness.
We all know these unspoken promises are absurd, but we're all influenced by them because they pervade our lives.
The first chapter in any introductory economics textbook tells us that economics is about the unending search for solutions to the eternal "economic problem": the sad truth that our resources are finite, but our wants are infinite. Economics grapples with the "problem of scarcity" that arises from this conflict.
Hamilton, however, argues that for most people in the rich countries, the economic problem has been solved. After 200 years of rising real incomes, capitalism "has moved to a phase of abundance, and abundance broadly spread".
And this has turned the economists' model on its head. Unending growth in the consumption of goods and services doesn't create happiness.
Rather, unhappiness sustains economic growth. The marketers and advertisers have to play on, and play up, our discontents, holding out the promise that another tub of margarine - or a Rolex watch - will bring us to nirvana.
The producers have to con us into keeping up our consumption so that production can keep growing. This makes sense?
Explains a lot why our domestic "consumer economy" is in a downward spiral.
Unfortunately, Robert Zoellick and Juanterm Bush have virtually abandoned efforts to decrease the federal regulatory bureaucracy that restricts access to our productive resources. Instead, they have focused on undermining our domestic efforts by transferring wealth-creating activities overseas.The Road to Productive Wealth
The only true key to wealth lies in production. While you can increase your own wealth at the expense of others, we all become wealthier when productive resources are increased. Greater wealth for our economy lies in increasing the quantity or quality of productive resources -- labor, capital, and natural resources. This is done by investing in education, capital goods, research and development, and technology.
What works for our economy, can also work for each of us. You can acquire wealth by education, buying productive capital goods, inventing a new product, and assorted other improvements in productive resources.
Your liberal counterparts have their hero too.
Man, I must have slept through that part of my Econ degree (cum laude, Claremont McKenna College). I do recall the part about the economic value people place on altruism, maximizing profits, supply curves, demand curves and Giffen goods. But the above theory never made it to our classroom.
Happiness, I believe, was discussed in Western Civ, Religion and perhaps Psych, but not in the hallowed halls of Economics.
It never enters the economists mind? Every economic course I took in college would use the phrase ceteris paribus, "all other things being equal" when they introduced a case like this. The guy should have done his homework on this one.
What is significant, according to the Austrian school, is not the rationality or irrationality of individual economic decisions made by consumers but their multiplicity. You can decide between product A or product B or not to purchase at all based on any durn thing you want, and it doesn't matter what. This is far from unrecognized by economists, it's a bedrock principle of most working schools of economics.
I'm glad that someone's finally admitting that sentiment, folly, and plain old human orneriness play just as much a role in economics as do supply and demand. People simply don't act "rationally" (in the Reason Magazine sense) when it comes to matters of money.
Maybe Chesterton was on to something. Now that the folly of communism has gone to its well-deserved grave, perhaps it's time we tried capitalism with a human face.
It's been tried. That path always led to subversion of freedom and lower economic standards.
That path was usually advocated by people who, much as you indicate, have failed to understand what economics says and does not say, feel frustrated with the misunderstood present as a result, and start dreaming of a better society.
You can do better than that by just two steps: (i) get a tutor in economics, and (ii) stop calling yourself a conservative (having a gun and being against illegal immigration does not make you one).
You assume that wealth and freedom are the primary values of the conservative philosophy. This is false. The primary values for a true conservative are Tradition (culture, faith, and custom), the Family (father, mother, children), and private Property (family ownership of capital). Wealth and Freedom are the primary values of the libertarian, not the conservatve. I am not a libertarian. I am a conservative.
When exactly was "capitalism with a human face" tried?
That path was usually advocated by people who, much as you indicate, have failed to understand what economics says and does not say, feel frustrated with the misunderstood present as a result, and start dreaming of a better society.
Ad hominem, so I'll skip it.
You can do better than that by just two steps: (i) get a tutor in economics, and (ii) stop calling yourself a conservative (having a gun and being against illegal immigration does not make you one).
You're right. Gun ownership and the desire for secure borders are not the criteria for being conservative. A true conservative advocates the preservation of tradition, family, and property as they have been known in the West. Laissez-faire libertarian capitalism is not a conservative philiosophy, since it rests on the existence of a propertyless working class and tends to weaken both the family unit and our Western cultural and religious tradition.
Unfortunately, in much the same way, the socialists have won the minds of people: even those, such as you seem to be, who are conservative culturally have no clue about the economic system that made this country what it is. Which is what prompted my previous remark.
The above-given comparison indicates how dangerous it is to be conservative only culturally. The second remark, which I made preciously and by which I stand, is that intellectual honesty dictates to withdraw judgement before available evidence is gathered, whereas you are anti-capitalist without even a clue about economics, the subject of the matter. (And no, it is not an ad hominem: I address your actions, not your person).
Sorry, no. To be a conservative means to be conservative across the board, to be an inhabitant of a conservative Weltanschauung. One cannot promote respect for tradition, family, and property in one area of life and advocate the destruction of tradition, family and property in another. "Cafeteria conservatism" is no conservatism at all.
Nazis, for instance, were conservative culturally and Leftist-socialist economically.
Sorry, no. Despite Hitler's kitsch affection for Volk and Kultur, the Nazi program was anything but socially conservative. Hitler hated traditional German culture, with its reserve, piety, and sentimental affectations; he saw it as the means by which the cosmopolitan Jews and their bourgeois allies kept the people weak and their true Volkisch genius (e.g., his own) in check. Hitler had nothing but disdain for traditionalism in art, architecture, and music, and despised the bourgeois family unit (ever hear of the Bund Deutscher Madel?) As for his attitide towards private property:
“Hitler did not have Mussolini's revolutionary socialist background...Nevertheless, he shared the socialist hatred and contempt for the 'bourgeoisie' and 'capitalism' and exploited for his purposes the powerful socialist traditions of Germany. The adjectives 'socialist' and 'worker' in the official name of Hitler's party ('The Nationalist-Socialist German Workers' Party') had not merely propagandistic value...On one occassion, in the midst of World war II, Hitler even declared that 'basically National Socialism and Marxism are the same.'“ —Richard Pipes (1999), Property and Freedom, New York: Alfred A. Knopf, p. 220Naziism was a philosophy of tearing down, not preserving; an attempt to create a new society (there's a reason der Führer called his Nazi state the New Order) rather than preserve the old.
Unfortunately, in much the same way, the socialists have won the minds of people: even those, such as you seem to be, who are conservative culturally have no clue about the economic system that made this country what it is.
Which one? Chattel slavery? Child labor? Coolies? Monopoly control of oil, steel, banking, and railroads? "No Irish Need Apply"? Margin investing? Tarriffs? Fiat currency? Company towns? America has never had one sole economic system; our economic history is a mishmash of state socialism, robber-baron capitalism, and everything in between. Obviously, something other than economics is reponsible for the greatness of America.
The above-given comparison indicates how dangerous it is to be conservative only culturally.
Our economic system did not make this country the greatest on Earth -- our Judeo-Christian culture did. At the root of our success is our underlying devotion to the Christian God and the sanctity of the individual human life. That is why the true patriot is more concerned with preserving the culture of our nation than with any mere economic policy.
The second remark, which I made preciously and by which I stand, is that intellectual honesty dictates to withdraw judgement before available evidence is gathered, whereas you are anti-capitalist without even a clue about economics, the subject of the matter.
The fact that my conclusions of the subject of economics differ from your own do not necessarily mean that those conclusions are incorrect. After all, as Richard Nixon pointed out to Nikita Kruschev, "You don't know everything."
I'm not anti-capitalist. I simply think everybody ought to own and control enough private-property capital to generate a living income for themselves and their families. As for being anti-monopoly and anti-proletarian, I plead gulity. Wage-slavery = slavery.
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