Phishing for Phools

Mainstream economics takes the particular features of capitalism a very recent form of economic organisation in human history as if they were universal, timeless and rational. It treats market exchange as if it’s the essential feature of economic behaviour and relegates production or work a necessity of all provisioning to an afterthought. It also focuses primarily on the relationship between people and goods (what determines how many oranges we buy?) and pays little attention to the relationships between people that this presupposes. It values mathematical models based on if-pigs-could-fly assumptions more than it values empirical research; so it pays little attention to real economies, having little to say about money and debt, for example! Predictably, the dismal science failed to predict the crisis. When the UK’s Queen Elizabeth asked why no one saw the crisis coming, the economists’ embarrassment was palpable. (Sayer 2015, 23-24)

Andrew Sayer (2015) Why We Can’t Afford the Rich

[M]any of our problems come from the nature of the economic system itself. If business people behave in the purely selfish and self-serving way that economic theory assumes, our free-market system tends to spawn manipulation and deception. The problem is not that there are a lot of evil people. Most people play by the rules and are just trying to make a good living. But, inevitably, the competitive pressures for businessmen to practice deception and manipulation in free markets lead us to buy, and to pay too much for, products that we do not need; to work at jobs that give us little sense of purpose; and to wonder why our lives have gone amiss. (…) The economic system is filled with trickery and everyone needs to know about it.” (Akerlof & Shiller, 2015, viii)

[F]ree markets do not just deliver this cornucopia that people want. They also create an economic equilibrium that is highly suitable for economic enterprises that manipulate or distort our judgment, using business practices that are analogous to biological cancers that make their home in the normal equilibrium of the human body. (Akerlof and Shiller 2015, x)

George A. Akerlof and Robert J. Shiller (2015) Phishing for Phools: The Economics of Manipulation & Deception

Many of the quotes above are from economists, experts in their field, some Nobel Prize-winning economists. One thing is clear; the Great Recession shook the very foundations of economics to its core. Only the blind leading the blind can pretend today that something isn’t amiss within the field of economics. The quotations above only represent a small sampling of the discontent rising to the surface within the field of economics today. There is actually a revolt underway in the younger generation of economic graduate students who lived through the Great Recession and the near melt down of the world’s economy yet witnessed their teachers being confounded by the Queen’s question. And if we value our children’s and our grandchildren’s economic future we can no longer afford to simply leave economics to the expertsthe Econocracy—for as these young graduate students tell us, we do so at our own peril. Amartya Sen in his essay Rational Fools: A Critique of the Behavioral Foundations of Economic Theory takes us on an intellectual journey back in time to the thoughts and reflections of one of the founders of the field of economics:

In his Mathematical Psychics, published in 1881, Edgeworth asserted that ‘the first principle of Economics is that every agent is actuated only by self-interest’. This view has been a persistent one in economic models, and the nature of economic theory seem to have been much influenced by this basic premise…. I should mention that Edgeworth himself was quite aware that this so-called first principle of Economics was not a particularly realistic one. Indeed, he felt that ‘the concrete nineteenth century man is for the most part an impure egoist, a mixed utilitarian’. This raises the interesting question as to why Edgeworth spent so much of his time and talent in developing a line of inquiry the first principle of which he believed to be false. The issue is not why abstractions should be employed in pursuing economic questionsthe nature of inquiry makes this inevitablebut why would one choose an assumption which he himself believed not merely inaccurate in detail but fundamentally mistaken? (Sen 1982, 84-85)

Amartya Sen (1982) Rational Fools

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