More Economics

This is from an essay in Mother Jones by James Galbraith, the son of John Kenneth, and an distinguished economist in his own right:

WHAT IS THE REAL NATURE of American capitalism today? Is it a grand national adventure, as politicians and textbooks aver, in which markets provide the framework for benign competition, from which emerges the greatest good for the greatest number? Or is it the domain of class struggle, even a “global class war,” as the title of Jeff Faux’s new book would have it, in which the “party of Davos” outmaneuvers the remnants of the organized working class?

The doctrines of the “law and economics” movement, now ascendant in our courts, hold that if people are rational, if markets can be “contested,” if memory is good and information adequate, then firms will adhere on their own to norms of honorable conduct. Any public presence in the economy undermines this. Even insurance—whether deposit insurance or Social Security—is perverse, for it encourages irresponsible risktaking. Banks will lend to bad clients, workers will “live for today,” companies will speculate with their pension funds; the movement has even argued that seat belts foster reckless driving. Insurance, in other words, creates a “moral hazard” for which “market discipline” is the cure; all works for the best when thought and planning do not interfere. It’s a strange vision, and if we weren’t governed by people like John Roberts and Sam Alito, who pretend to believe it, it would scarcely be worth our attention.

Galbraith is describing an economy which will always solve its own problems and return to an optimum state (that benefits all) automatically, without intervention from outside. As he suggests, it's a pretty strange idea, but important because people who argue for it fill university economics departments and (increasingly) the government and court system.

Galbraith then goes on to describe predation in economics and the government. As it turns out, companies and governments do not always stick to the straight and narrow if left to themselves and the market. Fear of a bad reputation does not keep congresspeople and CEOs -- some of them, at least -- from stealing everything not nailed down.

Many people who commit crimes do not expect to be caught. They don't expect to face consequences, so they are not deterred by consequences. This is especially true (I suspect) of white collar criminals, who do not live in an environment where many people go to prison.

And then there are the people who are unable to recognize when they have done wrong. Scooter Libby and his defenders may belong to this class. If I did it, it can't be wrong, no matter what it is. Obviously, someone like this is not going to be deterred from wrong-doing.

This is one of the many ways that human behavior is not smoothly self-regulating. Humans are not all alike, and we are not all rational in ways we all would recognize as rational.

There is the joke about the physicists who can't get work in their field, so get jobs at a dairy. After a while, they decide to present a paper on what they have learned at the dairy. The paper begins, "Assume a spherical cow of uniform density..."

I may be wrong, but I think we need to know how crazy current economic theory is. Kim Stanley Robinson makes some snippy remarks about economics in Sixty Days and Counting. One of the messages of his book is: our current analysis of reality says we can't change; there is no alternative to the world as it exists now. But in order to survive, we need to change, and that means we need to see the resources and options we actually have.

We need economic theory and political theory that puts people -- and our one home planet -- in the center and which realizes that human systems do not run themselves like ant societies or planets orbiting a star. We have to talk, argue, plan and make conscious changes in order to run our communities and our world. Newtonian physics is not a good model for human behavior. Ants are wonderful, but we don't work the same way they do. It's probably the reason we have large brains and big vocabularies. If we could solve all our problems with automatic behavior, we'd presumably have the brains and language skills of ants.